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Growth stocks could help increase my wealth and holdings in the coming years. With that in mind, one stock I plan to add to my holdings next time I can is Intertek Group (London: ITRK).
Let me explain my investment case.
Testing, safety and certification
It’s fair to say that Intertek isn’t a name that immediately jumps out at the UK’s main index among its illustrious and prestigious headliners. However, the lack of fanfare or brand recognition doesn’t make the testing and security business any less of an interesting investment prospect.
Intertek shares have had a fantastic 12 months, up 24% from 4,061p at this time last year to current levels of 5,060p.
The case of the bull
I see Intertek as having defensive attributes. This is because of the essential nature of the work it does. Think of all the consumer products we use every day, from the laptop I write on to the desk it sits on. Everything has to be tested to regulatory standards and approved with the appropriate certification. This is Intertek’s lifeblood and it has made a good business out of it.
Furthermore, Intertek has not only made a name for itself, but has become a world leader in this field. It currently operates approximately 300 laboratories worldwide. Moreover, the results speak for themselves, as the company has an excellent track record of performance. However, I understand that the past is no guarantee of the future.
Looking ahead, Intertek has great potential for growth as the world continues to grow and everyday life evolves. This simply means that there are more products available and more for Intertek to test and make money from. Hopefully it will continue to give this back to its shareholders.
Speaking of profitability, a 2.5% dividend yield is decent at the moment. Plus, I think it will grow. However, I understand that dividends are never guaranteed.
Finally, the stock appears to be a good value for money despite its market-leading position and established reputation and track record. It is currently trading at a price-to-earnings ratio of 19. This is not a value stock, but I think it seems a fair price for an established company with growth prospects and defensive characteristics.
Risks and final thoughts
From a bearish perspective, a significant risk that applies to most industries and companies, and not just Intertek, is economic turbulence. A slowdown could dampen Intertek's growth aspirations and could even undermine performance and profitability.
The economic problems in China, one of the world's largest hubs for new consumer products, are a clear example of this risk, and something I will be watching closely. Another example of this occurred when the pandemic hit and business was disrupted for a short period.
Overall, I am encouraged by Intertek, an established company with a good track record and attractive fundamentals. In addition, the interesting growth prospects mean that this could be a good time to buy shares at a decent entry point.